Troubled model railway firm Hornby has been given a reprieve after widening losses left it at risk of breaching the terms of its bank loans.

The group, whose brands also include Scalextric slot racing, Airfix kits and Corgi die-cast models, said Barclays had agreed to a waiver this month and added that the parties remained in “constructive” talks.

Hornby has seen its stock market value plunge over the past six months after warning over results three times.

The group said in February that the scale of losses it was expecting as a result of poor sales at the start of this year could see it breach its banking agreements in March.

Chief executive Richard Ames stood down last month, shortly after the most recent profit warning, with chairman Roger Canham taking the helm.

But in its latest trading update yesterday, the company said that trading since January has been “encouraging”, with UK sales up 4% in the second half to March, although wider group sales fell 2% overall.

Hornby said: “The group welcomes the continued support from its lender, Barclays. Recent trading has been encouraging and the board is pleased with the positive like-for-like growth that our core UK business is delivering.

“We will update shareholders on the continued progress that we are making when we announce our results for the year in June.”

Hornby warned last month that it expected to post “substantially” wider underlying pre-tax losses for the full year, of between £5.5million and £6m, and announced a £1m write-off after reviewing its stock and balance sheet.

The group admitted that the failure of new year promotions to boost sales represented a “substantial setback” for its recovery plan following disruption from new computer and stock management systems and troubles with suppliers in China.